IRS to Some CUs: You Are Not Tax Exempt

Some state-charted credit unions have been told by the Internal Revenue Service that they are no longer tax exempt because the IRS hadn’t received their 990 forms.

The IRS included several dozen credit unions on its list of organizations that would lose their tax- exempt status because the agency hadn’t received the forms. State regulators used to file these forms on behalf of state-charted credit unions but stopped providing this service.

Executives of CUNA and NAFCU said that most of the credit unions had in fact turned in forms, but the IRS’ inadequate recordkeeping caused the mix up.

IRS spokesman Anthony Burke said he would look in to the dispute. He noted that the agency had been vigilant in letting all tax-exempt organizations know that because of a law passed by Congress in 2006, if they didn’t turn in their 990 forms for three consecutive years they would lose their tax-exempt status.

According to CUNA, the Texas Credit Union League and NAFCU, in some instances the IRS has also questioned why some federal credit unions haven’t filed a Form 990, even though federal credit unions are exempt from this requirement.

NAFCU President/CEO Fred Becker said his organization discovered about 40 credit unions on an IRS list of several thousand organizations in danger of losing their tax-exempt status.

“It’s a big nothing because it is likely to be resolved,” he said. Becker added that that some of his staff members have spoken to the IRS on behalf of credit unions.

CUNA Executive Vice President and General Counsel Eric Richard said his group has urged credit unions that receive letters to send the IRS their Form 990s from the past three years. He also said CUNA and its outside tax counsel are in discussions with the IRS to resolve the disagreement.

“We are at the early stages of our talks,” he said.

The IRS also questioned why some federal and state credit unions have failed to apply to the IRS for tax-exempt status.

Becker and Richard noted that they have told credit unions that unlike some other organizations, once a credit union is chartered it is automatically exempt from federal taxes and doesn’t have to make a separate application.